Understanding and Offsetting Mortgage Closing Costs, Part 1

There are several steps to any mortgage process, and one of the final such steps involved is known as closing. This step includes a few important elements, most notably closing costs, which include fees, insurance, escrow costs and other potential areas depending on your specific purchase.

At Primary Residential Mortgage, our team of Texas mortgage professionals is here to help you understand everything you need to know about closing costs. This two-part blog series will dig into both the basics and types of closing costs available and some options you have at your disposal if you’re looking to reduce your closing costs for any reason.

Closing Cost Basics

As we noted, closing costs are fees you pay to a lender or various third parties to close the mortgage. There is no set amount or percentage for closing costs, as they’ll vary by situation and loan amount, plus the time of month closing is done during. A few areas that might be included in closing costs:

• Origination fees: Fees charged by lenders for their services, often a small percentage of the total loan amount.
• Processing and underwriting fees: Fees that may or may not be charged by lenders for services that are sometimes provided by third parties.
• Discount points: If you’re paying discount points as a way of getting a lower interest rate, this can impact your closing costs significantly.
• Other third-party fees: For areas like title and escrow areas, appraisal and others.
• Taxes, insurance and other: You have to pay property taxes, homeowner’s insurance, and possible interest payments.

Types of Closing Costs

There are two kinds of closing costs: Recurring and non-recurring. Recurring closing costs, as the name suggests, will be charged more than once, including these areas:

• Mortgage and homeowner’s insurance
• Homeowner’s association dues (if included in closing costs)
• Property taxes
• Flood insurance
• Mortgage payment interest

On the flip side are non-recurring costs, which will be charged a single time and then put in the rearview mirror. These include several other areas:

• Loan origination and lender fees
• Mortgage discount points
• Transfer taxes
• Fees for home inspection, termite inspection, building record, appraisal and more
• Fees for credit report, title and escrow, document preparation, recording and wire, and notary areas

Seller Contributions

In many cases of home purchase, the buyer will ask the seller to contribute some or all of the closing costs required. This won’t be for nothing – in exchange, the seller can list a higher purchase price or receive credit for repairs or other home issues found during inspection.

It’s important to note that these seller contributions cannot go toward down payments or reserves. However, they can create greater flexibility with your money, allowing you to increase your down payment. This is an area that will likely come up during negotiations, and there may be maximum amounts the seller is allowed to contribute depending on the loan type.

For more on ways to offset your closing costs, or to learn about any of our mortgage loan services, speak to the staff at Primary Residential Mortgage today.